U.S. Housing Starts Fell 29% in Month, Crippled by Storms

By James L. Rowe Jr.February 17, 1978

Housing starts declined dramatically in January as bad weather across most of the country put a crimp in construction activity.

The Commerce Department reported yesterday that new housing units - homes and apartments - were begun at an annual rate of 1.55 million last month, down 29 percent from the 2.19 million rate in December.

Similarly, housing permits, an indication of future construction activity, were issued at an annual rate of 1.53 million in January, 15 percent below the December rate of 1.81 million, the Commerce Department said.

Courtenay Slater, chief economist for the Department of Commerce, cautioned against reading too much into the sharp drop in housing starts.

"January building statistics are not reliable in the first place," she said. The big decline last month appears to be entirely due to weather.

While the Commerce Department attempts to seasonally adjust its housing start figures, building activity is so sensitive to the weather that seasonal adjustment factors are much less reliable than they are, for example, employment or industrial prices.

Michael Sumichrast, chief economist for the National Association of Home Builders, said that while two-thirds of the fall-off in housing starts was due to the weather, one-third represented a slowdown in home building peaked last October and has declined since then.

Sumichrast said a declining amount of lendable funds at savings and loan associations and rising mortgage interest rates will combine to help drive down housing starts from last year's 1.997 million to between 1.65 and 1.7 million.

Sumichrast said there is "no question we have come to the end of a 36-month recovery of housing."

Government economists did not agree with him. Marshall Kaplan, director of special studies for the Federal Home Loan Bank Board, said he saw nothing in the January numbers to suggest anything but the impart of bad weather.

Not only was there severe snow and cold weather in the Northern part of the country, there were freak storms in California that made the ground too soft to build on, he said.

"It can all be explained by the weather," Kaplan said. "If there are non-weather factors in the decline, then they are not apparent."

Consultants to the Commerce Department's advisory Business Council view the housing industry as "having the greatest potential for weakness in 1978," according to a report to the council yesterday.

But these consultants think activity will reach a peak in the first quarter of this year, unlike Sumichrast who thinks the rate of housing starts peaked late last year.

Irving S. Shapiro, chairman of DuPont and vice-chairman of the council, said in a report that the advisory group's economic consultants think the overall economy will grow about 4.2 percent in 1978, less than last year's 4.9 percent and below the government's prediction of 4.7 percent.

A levelling off of spending on housing and consumer purchases is the main reason for the slowdown in economic growth, according to Shapiro's report.

"Rising interest rates and weakness in the single-family housing market will be responsible for the decline," the report said.

Sumichrast of the home builders said nearly all the decline in housing starts will be in single-family homes. He noted that the nation is already approaching a 10 percent interest rate on mortgages.